SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 1997
--------------
C-Phone Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 0-24424 06-1170506
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
6714 Netherlands Drive, Wilmington, North Carolina 28405
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 395-6100
--------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
------------
Pursuant to previously commenced ongoing discussions with Josephthal
Lyon & Ross Incorporated ("JLR"), on March 31, 1997, C-Phone Corporation (the
"Company") entered into a private placement agreement with JLR pursuant to which
JLR agreed to act as placement agent for a private placement (the "Placement")
of a minimum of $3,400,000, and a maximum of $5,000,000, of the Company's
securities, consisting of shares of the Company's common stock ("Common Stock"),
par value $.01 per share (initially valued at $6.00 per share), plus the right,
under certain circumstances, to receive additional shares of Common Stock
pursuant to the terms of "contingent value rights" (the "Rights") granted to the
participants in the Placement (the shares of Common Stock sold in the Placement
(the "Original Shares") and the Rights being, collectively, the "Securities").
The Company has granted the participants in the Placement (the
"Investors"), holding in the aggregate at least 33-1/3% of the Securities sold
in the Placement, one right to request, at any time subsequent to 15 days after
the purchase of their Securities, on behalf of all of the Investors, the
registration of the Original Shares and the shares of Common Stock issuable upon
exercise of the Rights. The Company has agreed that, in such event, it will (i)
within five days thereafter, prepare and file, at the Company's expense, a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933 (the "1933 Act") with respect to such shares of Common
Stock, (ii) thereafter use its reasonable best efforts to have the Registration
Statement declared effective by the Securities and Exchange Commission, and
(iii) use its reasonable best efforts to maintain the Registration Statement
current for the lesser of one year after the date that the Registration
Statement is declared effective (the "Effective Date"), or until the securities
included in the Registration Statement had been sold thereunder.
The Rights are automatically exercised at the time, and from time to
time, as the Original Shares are first publicly sold through a broker dealer
after the Effective Date, and expire one year after the Effective Date. The
terms of the Rights provide that, upon the first such sale of any Original
Shares at a price of less than $8.00 per share, the seller of the Original
2
<PAGE>
Shares will automatically receive, for each such share sold, without the payment
of any additional consideration, such additional number of shares of Common
Stock as equals (i) $8.00 divided by the Adjusted Price, minus (ii) one; where
the Adjusted Price will equal the greater of (x) the average closing bid price
per share of Common Stock on The Nasdaq National Market (the "NNM") for the ten
trading days immediately preceding the date of sale of the Original Shares, or
(y) $2.00. In accordance with the rules of the NNM, the Company is required to
obtain shareholder approval prior to the issuance of any shares of Common Stock,
in excess of approximately 870,000 shares of Common Stock, issued or issuable to
the Investors in connection with the Placement; the Company has agreed with the
Investors to include a proposal for such approval on the agenda for its 1997
Annual Meeting of Shareholders, currently scheduled for early August.
On March 31, 1997 and April 1, 1997, the Company completed the first
tranche of the Placement, in which the Company received gross proceeds of an
aggregate of $4,012,000 from the sale of an aggregate of 668,667 shares of
Common Stock and associated Rights. In addition, the Company expects, in the
near future, to complete the remainder of the Placement pursuant to which it
would receive net proceeds of $988,000 from the sale of an aggregate of
approximately 164,667 additional shares of Common Stock and associated Rights.
In connection with the Placement, Daniel Flohr, Chairman, President and
Chief Executive Officer of the Company, delivered to the JLR, as escrow agent
for the Investors, an aggregate of 250,000 of his own shares of Common Stock,
which shares will be forfeited, at the rate of 1,000 shares a day, if the
Effective Date of the Registration Statement does not occur within 95 days after
the Company receives a demand from the Investors to prepare the Registration
Statement; and, in the event that the Effective Date does not occur with 185
days after the Company receives such demand, the remaining escrowed shares will
be forfeited.
The Company has agreed to pay JLR for its services (i) 9% of the gross
proceeds received by the Company in the Placement, (ii) reimbursement of JLR's
out-of-pocket expenses, not to exceed $25,000, and (iii) warrants (the
"Warrants") to acquire an aggregate of 150,000 shares of Common Stock at an
3
<PAGE>
exercise price of $9.60 per share (120% of the closing bid price for the Common
Stock on the NNM on the trading day immediately prior to the first closing of
the Placement). The Warrants expire 90 days after the Effective Date, and the
shares of Common Stock issuable upon exercise of the Warrants are to be included
in the Registration Statement.
The Securities were offered for sale, and were sold, without
registration thereof under the 1933 Act, pursuant to the exemption from
registration provided by Regulation D under the 1933 Act.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(c) Exhibits
1. Placement Agent Agreement, dated March 31, 1997,
between C-Phone Corporation and Josephthal Lyon & Ross
Incorporated.
2. Form of Securities Purchase Agreement, dated March 31,
1997, between C-Phone Corporation and each subscriber party thereto, with terms
of Contingent Value Rights granted thereby attached thereto.
3. Form of Registration Rights Agreement, dated March
31, 1997, between C-Phone Corporation and each subscriber party
thereto.
4. Placement Agent Warrant Agreement, dated March 31,
1997, between C-Phone Corporation and Josephthal Lyon & Ross
Incorporated.
5. Stock Pledge Agreement, dated March 31, 1997,
between C-Phone Corporation and Josephthal Lyon & Ross
Incorporated, as agent.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C-PHONE CORPORATION
/s/ Daniel P. Flohr
--------------------------
By: DANIEL P. FLOHR
President and Chief
Executive Officer
Date: April 1, 1997
5
PLACEMENT AGENT AGREEMENT
March 31, 1997
Josephthal Lyon & Ross Incorporated
200 Park Avenue, 24th Fl.
New York, New York 10166
Dear Sirs:
The undersigned C-Phone Corporation, a New York corporation (the
"Company"), hereby agrees with Josephthal Lyon & Ross Incorporated ("Josephthal"
or "Placement Agent") as follows:
1. BEST EFFORTS OFFERING. The Company hereby engages Josephthal to act
as its exclusive agent during the term of the offering (the "Offering") as
outlined herein to sell, in an aggregate offering of not less than $3,400,000
nor more than $5,000,000 on a "best efforts" basis, shares of common stock of
the Company (the "Common Stock") at a purchase price per share of Common Stock
equal to the lesser of (a) $6.00, and (b) 75% of the average of the closing bid
price of the Company's Common Stock for the 10 trading days immediately
preceding the date on which the Contingent Value Right referred to immediately
below is exercised; provided, however, that in no event shall the purchase price
be reduced to less than $2.00 per share. Upon the closing of the Offering (the
"Closing"), investors shall receive certificates representing (a) the Common
Stock on the basis of a $6.00 per share purchase price, and (b) the Contingent
Value Right, exercisable for a period of one (1) year from the effective date of
the Registration Statement (as defined below), entitling them to such additional
number of shares of Common Stock as may be issuable pursuant to the formula set
forth above.
Holders of Common Stock sold in the Offering shall have one demand
registration right with respect to their shares, exercisable at the request of
holders of at least 33-1/3% of the shares issued in the Offering. Such demand is
exercisable at any time commencing 15 days after the Closing. The Company shall
pay all of the fees, expenses and disbursements of such demand registration,
except for (i) any commissions which may be payable by an investor, and (ii)
fees, expenses and disbursements of counsel to any investor. The Company shall
prepare and file a registration statement (the "Registration Statement") with
the Securities and Exchange Commission ("SEC") within 5 days of receipt of
notice of such demand, which Registration Statement shall include the maximum
number of shares of Common Stock issued and potentially issuable in the
Offering. In the event that investors in the Offering are entitled to any shares
of Common Stock in excess of 870,000 shares minus the number of Shares delivered
on the Closing pursuant to the terms of the Contingent Value Rights, then the
Company agrees (i) to include in its proxy materials for the Company's regularly
scheduled 1997 Annual Meeting of Shareholders to be held no later than August
30, 1997, a proposal to authorize the issuance of such additional shares, (ii)
<PAGE>
to use its best efforts to obtain timely clearance from the SEC of such proxy
materials, (iii) to mail such proxy materials in a timely manner and (iv) to use
its best efforts to cause the Company's board of directors to recommend (and not
subsequently withdraw) approval of such Proposal to shareholders. The Company
shall use its reasonable best efforts to have the Registration Statement
declared effective as promptly as practicable. The effectiveness of the
Registration Statement shall be maintained current until the earlier of (a) all
of the shares of Common Stock included therein have been sold, or (b) one year
from the date on which it was declared effective.
As collateral security to ensure compliance by the Company of its
registration obligations hereunder, Dan Flohr, the Company's Chairman of the
Board and Chief Executive Officer, shall enter into a Stock Pledge Agreement in
the form annexed hereto as Exhibit A, pursuant to which he shall pledge 250,000
shares of Common Stock. In the event that for whatever reason the Registration
Statement is not declared effective by the SEC within 95 days following receipt
by the Company of the demand notice, then for each day subsequent to such 95th
day for which the Registration Statement is not declared effective, the
investors, through the escrow agent, shall be entitled to foreclose on 1,000
shares of Common Stock, up to a maximum of 90 days, or 90,000 shares. If, on the
186th day following the Company's receipt of such demand notice the Registration
Statement has not yet been declared effective, then the investors through the
escrow agent, may foreclose on the remaining 160,000 shares.
The Common Stock will be offered in units of $500,000 each, but
fractional units may be offered in the joint discretion of the Company and the
Placement Agent. The Common Stock shall be offered without registration under
the Securities Act of 1933, as amended (the "Act") pursuant to the exemption
from registration created by Regulation D thereof, and shall be offered to
"accredited investors" only, as such term is defined pursuant to Regulation D.
2. OFFERING DOCUMENT. The Company has prepared a confidential draft,
dated March 28, 1997 of a proposed Form S-3 Prospectus contained in the
Company's proposed Post-effective Amendment No. 1 on Form S-3 to the Company's
registration statement on Form S-1 (registration no. 33-80280) (the "Disclosure
Document"), which shall be in form and substance reasonably satisfactory to
Josephthal. The Company agrees that it shall modify or supplement the Disclosure
Document during the course of the offering to insure that the Disclosure
Document does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. Josephthal will not make any use of the
Disclosure Document other than for purposes of implementing this Agreement, nor
will it or any of its agents, employees or participating soliciting dealers use
the same or do any other act or thing in the course of the offering or sale
hereunder which would constitute a violation of the Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act") or any "Blue Sky" laws or regulations
applicable to the offering and sale. Josephthal shall use its reasonable best
efforts to deliver the Disclosure Document only to those entities whom it
reasonably believes to be "accredited investors" (as such term is defined in
Regulation D under the Act) and who Josephthal reasonably believes have an
interest in participating in the offering contemplated hereby.
2
<PAGE>
3. COMPENSATION. You will be paid at the Closing a cash commission of
nine percent (9%) of the subscription price of the Common Stock sold by or
through you. In addition, you will receive an expense allowance of up to
$25,000, to cover your expenses of this Offering including legal fees and
disbursements, but exclusive of any "Blue Sky" legal fees or disbursements or
filing fees.
In addition, you shall receive 100,000 warrants (the "Josephthal
Warrants"), each of which shall entitle you to purchase one share of the
Company's Common Stock at an exercise price of 120% of the closing bid price of
the Common Stock on the date immediately preceding the Closing. The Josephthal
Warrants shall be exercisable for a period of 90 days following the effective
date of the Registration Statement, and the Common Stock underlying the
Josephthal Warrants shall be included in the Registration Statement.
If, the Placement Agent delivers a copy of the Disclosure Document to
an investor who does not participate in the Offering but who purchases from the
Company in a private placement within one (1) year after the date hereof any
securities of the Company which are different from those being offered
hereunder, the Placement Agent shall be entitled to compensation which it would
obtain hereunder on the same basis as it would have been entitled if it had
arranged for the sale of a comparable dollar amount of securities offered
hereunder.
4. EXPENSES. Whether or not this Offering is successfully completed, it
shall be the Company's obligation to bear all of its expenses in connection with
the proposed offering, including, but not limited to, the following: filing
fees, printing and duplicating costs, the Company's and, subject to the
provisions of the first paragraph of Section 3, your postage and delivery
expenses, registrar and transfer agent fees, reasonable counsel and accounting
fees of the Company, issue and transfer taxes, if any, and "Blue Sky" counsel
fees and expenses. The "Blue Sky" legal work shall be handled by the Company's
counsel for the Company's account.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company represents, warrants and agrees that (i) it is authorized to enter into
this Agreement and to carry out the offering contemplated hereunder and this
Agreement constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, (ii) there is no finder in connection
with this Offering, (iii) the Company will deliver at the Closing (a) a
certificate of each of the Company's President and Treasurer to the effect that
the Disclosure Document conforms to the requirements hereof and has been
modified or supplemented as required by Paragraph 2 hereof and does not contain
any untrue statement of material fact or fail to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and all necessary corporate approvals have been obtained to enable
the Company to deliver the Common Stock in accordance with the terms of the
offering and (b) an opinion of counsel for the Company to the effect that to the
best of their knowledge the Disclosure Document conforms to the requirements
hereof and does not (except with respect to the financial statements or
forecasts as to which no opinion need be expressed) contain any untrue statement
of material fact or fail to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and such
other opinions as Josephthal shall reasonably require.
3
<PAGE>
6. INDEMNIFICATION. (a) Subject to the conditions set forth below, the
Company and Josephthal hereby agree that they will indemnify and hold harmless
each other and each director, officer, shareholder, employee or representative
thereof and each person controlling, controlled by or under common control with
such party within the meaning of Section 15 of the Act or Section 20 of the 1934
Act,(individually, an "Indemnified Person") from and against any and all loss,
claim, damage, liability, cost or expense whatsoever (including, but not limited
to, any and all reasonable legal fees and other expenses and disbursements
incurred in connection with investigating, preparing to defend or defending any
claim, action, suit or proceeding (collectively, a "Claim"), including any
inquiry or investigation, commenced or threatened, or in appearing or preparing
for appearance as a witness in any Claim including any inquiry, investigation or
pretrial proceeding such as a deposition) (collectively, a "Loss") to which such
Indemnified Person may become subject under the Act, the 1934 Act or other
federal or state statutory law or regulation at common law or otherwise, arising
out of an act or omission of the other party related to (i) this Agreement, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the Disclosure Document (except those statements given in writing by an
Indemnified Person expressly for inclusion therein) or omission of a material
fact from the Disclosure Document, or (iii) the breach of any representation or
warranty made by the other party in this Agreement. Each party further agrees
that upon demand by an Indemnified Person at any time or from time to time, it
will promptly reimburse such Indemnified Person for any Loss actually and
reasonably paid by the Indemnified Person as to which the other party has
indemnified such Indemnified Person pursuant hereto. Notwithstanding the
foregoing provisions of this Paragraph 6, any such payment or reimbursement by
the other party of fees, expenses or disbursements incurred by an Indemnified
Person in any Claim in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is entered
against such Indemnified Person as a direct result of such person's gross
negligence, bad faith or willful misfeasance will be promptly repaid to the
other party.
(b) Promptly after receipt by an Indemnified Person under paragraph (a)
above of notice of the commencement of any Claim, such Indemnified Person will,
if a claim in respect thereof is to be made against the other party under
paragraph (a), notify the other party in writing of the commencement thereof. In
case any such Claim is brought against any Indemnified Person, such Indemnified
Person promptly shall notify the other party of the commencement thereof, and
the other party shall assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Person; provided, however, that if the
defendants in any such action include both the Indemnified Person and the other
party or any corporation controlling, controlled by or under common control with
the other party, or any director, officer, employee, representative or agent of
any thereof, and the Indemnified Person shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to such other defendant, the Indemnified Person
shall have the right to select separate counsel to represent it, and the other
party shall pay the reasonable fees and expenses of such separate counsel.
Failure of the Indemnified Person to so notify the other party shall not relieve
the other party from any obligation it may have hereunder, unless and only to
the extent such failure results in the forfeiture by the other party of
substantial rights and defenses and will not in any event relieve the other
party from any other obligation or liability it may have to any Indemnified
Person otherwise than under this Agreement.
4
<PAGE>
Each party further agrees that it will not, without the prior written
consent of the relevant Indemnified Person, settle, compromise or consent to the
entry of any judgment in any pending or threatened Claim in respect of which
indemnification may be sought hereunder (whether or not any Indemnified Person
is a party to such Claim), unless such settlement, compromise or consent
includes an unconditional, irrevocable release of each Indemnified Person from
any and all liability arising out of such Claim.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph (a) of this
Paragraph 6 is due in accordance with its terms, but is for any reason held by a
court to be unavailable on grounds of policy or otherwise, the Company and
Josephthal shall contribute to the aggregate Losses to which the Company and
Josephthal may be subject in such proportion so that Josephthal is responsible
for that portion represented by the percentage that the aggregate of its
commissions actually received under this Agreement bears to the aggregate
offering price for all shares of Common Stock sold under the Disclosure Document
and the Company is responsible for the balance, except as the Company may
otherwise agree to reallocate a portion of such liability with respect to such
balance with any other person; provided, however, that no person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (c), any person
controlling, controlled by or under common control with Josephthal, or any
partner, director, officer, employee, representative or any agent of any
thereof, shall have the same rights to contribution as Josephthal and each
person who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act, each officer of the Company and each director of the
Company shall have the same rights to contribution as the Company. Any party
entitled to contribution shall, promptly after receipt of notice of commencement
of any Claim against such party in respect of which a claim for contribution may
be made against the other party under this paragraph (c), notify such party from
whom contribution may be sought, but the omission to so notify such party shall
not relieve the party from whom contribution may be sought from any obligation
it or they may have hereunder or otherwise than under this paragraph (c). The
indemnity and contribution agreements contained in this Paragraph 6 shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Indemnified Person or any termination of this Agreement.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement is delivered in the State of New York
and shall be construed and enforced in accordance with and governed by, the laws
of the State of New York, without giving effect to its conflict of law
principles. The parties hereto hereby agree that any action, proceeding or claim
against it arising out of or of or in any way related to this Agreement shall be
brought and enforced in the courts of the State of New York or the United States
of America for the Southern District of New York and irrevocably submits to such
exclusive jurisdiction, and hereby irrevocably waives any objection to such
exclusive jurisdiction and waives any objection or claim that the same may be an
inconvenient forum.
5
<PAGE>
(b) COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original and all of which together
shall constitute one and the same instrument.
(c) NOTICES. Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall either be (i) mailed by
first class mail, postage prepaid, addressed (a) if to Josephthal, at the
address set forth at the head of this Agreement, Attention: Dan Purjes,
Chairman; and (b) if to the Company, 6714 Netherlands Drive, Wilmington, NC
28405; Attention: Dan Flohr, Chairman, or (ii) delivered personally or by
express courier. The notice shall be deemed given, if sent by mail, on the third
day after deposit in a United States post office receptacle, or if delivered
personally or by express courier, then upon receipt.
(d) AMENDMENTS. This Agreement may not be amended, modified or waived,
except in a writing signed by all of the parties hereto.
If the foregoing correctly sets forth the understanding between
Josephthal and the Company, please so indicate in the space provided below for
that purpose whereupon this Agreement shall constitute a binding agreement
between us.
Very truly yours,
C-PHONE CORPORATION
By: /s/ Daniel Flohr
--------------------
Daniel Flohr
President and CEO
Confirmed and agreed to:
JOSEPHTHAL LYON & ROSS INCORPORATED
By: /s/ Scott Weisman
----------------------
Scott Weisman
Senior Managing Director
Director of Investment Banking
6
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SECURITIES
PURCHASE AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE 1933 ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
SECURITIES PURCHASE AGREEMENT
C-PHONE CORPORATION
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is executed in
reliance upon the transaction exemption afforded by Regulation D as promulgated
by the Securities and Exchange Commission (the "SEC"), under the Securities Act
of 1933, as amended, including the rules and regulations thereunder (the "1933
Act").
This Agreement has been executed by the undersigned in connection with
the private placement of shares (the "Shares") of common stock ("Common Stock"),
$.01 par value per share, and accompanying contingent value rights (the "Rights"
and with the Shares hereinafter referred to as the "Securities"), of C-PHONE
CORPORATION (NASDAQ symbol "CFON"), located at 6714 Netherlands Drive,
Wilmington, NC 28405, a corporation organized under the laws of the State of New
York, USA (hereinafter referred to as the "Company"). This Agreement and the
offer and sale of the Securities are being made in reliance upon the provisions
of Regulation D under the 1933 Act.
The undersigned subscriber listed on the signature page hereto
(hereinafter referred to as "Subscriber"), hereby represents and warrants to,
and agrees with, the Company as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) Purchase of Shares. Subject only to the conditions set forth in
Section 15 hereof, Subscriber hereby agrees to purchase from the Company shares
of Common Stock at an aggregate purchase price of -------------- U.S. Dollars
(US$---------) (the "Purchase Price"), which number of shares shall be
determined by multiplying (i) the number of Shares purchased hereby and (ii) a
share price of Six Dollars ($6.00), subject to adjustment pursuant to Section
1(b) below. As set forth in Section 6, the Company is granting the Subscriber
certain registration rights with respect to the Securities.
(b) Rights. In addition to the issuance of the Shares, the Company
shall issue to Subscriber for no additional consideration the Rights upon the
terms attached hereto as Attachment A, which is incorporated herein by reference
and made a part hereof.
(c) Form of Payment. Subscriber shall pay the Purchase Price by
delivering good funds in United States Dollars by intra-account transfer or wire
transfer, unless the Company shall otherwise agree, against delivery of the
Securities in accordance with the instructions provided to the Subscriber by the
Company.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SUBSCRIBER.
Subscriber acknowledges, represents, warrants and agrees as follows:
(a) ORGANIZATIONS AND AUTHORIZATION. If Subscriber is not a natural
person, (i) Subscriber is duly incorporated or organized and validly existing in
the state or country of its incorporation or organization and has all requisite
power and authority to purchase and hold the Securities, (ii) the decision to
invest and the execution and delivery of this Agreement by Subscriber, the
performance by Subscriber of its obligations hereunder and the consummation by
Subscriber of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of Subscriber, and (iii) Subscriber's
signatory has all right, power and authority to execute and deliver this
Agreement on behalf of Subscriber. This Agreement has been duly executed and
delivered by Subscriber and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of Subscriber, enforceable against Subscriber in accordance with its
terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws effecting the rights of
creditors generally and available equitable remedies.
(b) EVALUATION OF RISKS. Subscriber has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
(c) INDEPENDENT COUNSEL. Subscriber acknowledges that it has been
advised to consult with its own attorney regarding legal matters concerning the
Company and to consult with its tax advisor regarding the tax consequences of
acquiring the Securities.
(d) NO REGISTRATION, REVIEW OR APPROVAL. Subscriber acknowledges and
understands that the limited private offering and sale of the Securities
pursuant to this Agreement has not been reviewed or approved by the SEC or by
any state securities commission, authority or agency, and is not registered
under the 1933 Act or under the securities or "blue sky" laws, rules or
regulations of any state. Subscriber acknowledges, understands and agrees that
the Securities are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the 1933 Act pursuant to
Section 3(b) or Section 4(2) of the 1933 Act and Regulation D promulgated under
the 1933 Act, and (ii) a similar exemption to the registration provisions of
applicable state securities laws. Subscriber understands that the Securities
will be imprinted with a legend that prohibits the transfer of the Securities
unless (i) they are registered or such registration is not required, and (ii) if
the transfer is pursuant to an exemption from registration other than Rule 144
under the 1933 Act and, if the Company shall so request in writing, an opinion
of counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.
(e) INVESTMENT EXPERIENCE. Subscriber is an "accredited investor" as
defined in Rule 501(a) under the 1933 Act and has provided to the Company
reasonable evidence of such, including without limitation, a "Prospective
Investor Questionnaire". Subscriber is aware of the Company's business affairs
and financial condition and has had access to and has acquired sufficient
information about the Company, including the confidential draft, dated March 28,
1997, of the proposed Form S-3 Prospectus contained in the Company's proposed
Post-Effective Amendment No. 1 on Form S-3 (the "Form S-3") to the Company's
registration statement on Form S-1 (registration no. 33-80280), to reach an
informed and knowledgeable decision to acquire the Securities. Subscriber has
such business and financial experience as is required to give it the capacity to
protect its own interests in connection with the purchase of the Securities.
(f) INVESTMENT INTENT. Subscriber represents that it is purchasing
the Securities for its own account as principal for investment purposes and not
with a view towards distribution. Subscriber understands that its acquisition of
the Securities has not been registered under the 1933 Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Subscriber's investment intent as expressed herein. Subscriber will
not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Securities except in compliance with applicable law including the
1933 Act and any applicable state securities laws, and the rules and regulations
promulgated thereunder.
2
<PAGE>
(g) REGISTRATION OR EXEMPTION REQUIREMENTS. Subscriber acknowledges
and understands that the Securities may not be resold or otherwise transferred
except in a transaction registered under the 1933 Act and any applicable state
securities laws or unless an exemption from such registration is available.
Subscriber understands that the Securities will be imprinted with a legend that
prohibits the transfer of the Securities unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the 1933 Act and, if the
Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that the transaction is so
exempt.
(h) NO ADVERTISEMENTS. Subscriber is not subscribing for Securities
as a result of, or subsequent to, any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
(i) LEGALITY. Subscriber has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Securities or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Securities,
(ii) any foreign exchange restrictions applicable to it with respect to such
purchase, (iii) any governmental or other consent that may need to be obtained
by it, and (iv) the income tax and other tax consequences, if any, that may be
relevant to its purchase, holding, redemption, sale, or transfer of the
Securities. Subscriber's subscription and payment for, and its continued
ownership of, the Securities, will not violate any applicable securities or
other laws of its jurisdiction.
(j) DUE DILIGENCE. Subscriber and its representatives have been
solely responsible for Subscriber's own "due diligence" investigation of the
Company and its management and business, for its own analysis of the merits and
risks of its investment in the Securities, and for its own analysis of the
fairness and desirability of the terms of such investment. In taking any action
or performing any role relative to the arranging of the proposed investment,
Subscriber has acted solely in its own interest, and neither Subscriber nor any
of its representative has acted as an agent of the Company.
(k) RESALE OF THE SECURITIES. In connection with any resale of the
Securities, Subscriber understands the requirements for qualifying for the
exemption from registration afforded by Section 4(1) of the 1933 Act and that
there can be no assurance that Subscriber will be able to qualify for any
exemptions, including the exemptions afforded by Section 4(1) of the 1933 Act.
Subject to Section 3(a) of the Demand Registration Rights Agreement, the Company
shall have no liability in the event Subscriber is unable to qualify for the
exemption afforded by Section 4(1) and is unable to offer, sell or otherwise
transfer the Securities in the United States or elsewhere.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company acknowledges, represents, warrants and agrees as follows:
(a) ORGANIZATION AND AUTHORIZATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as currently
conducted. The Company is not in default or violation of any term or provision
of its Articles of Incorporation, as amended to date, or its By-laws, as
currently in effect, nor will the consummation of the transactions contemplated
by this Agreement cause any such default or violation. The Company has all
requisite corporate power and authority to enter into this Agreement, to sell
the Securities hereunder and to
3
<PAGE>
carry out and perform its obligations under the terms of this Agreement. This
Agreement is the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
effecting the rights of creditors generally and available equitable remedies.
(b) REPORTING ISSUER COMPANY STATUS. The Company is in full
compliance in all material respects, to the extent applicable, with all
reporting obligations under either Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, including the rules and regulations thereunder
(the "Exchange Act"), and shall use reasonable best efforts to continue to
maintain such status on a timely basis. The Company has registered the Common
Stock pursuant to Section 12(g) of the Exchange Act and the Common Stock trades
on The Nasdaq National Market.
(c) SEC FILINGS. For a period of twelve (12) months immediately
preceding this offer and sale (i) none of the Company's filings with the SEC
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) the Company has timely filed all requisite forms, reports
and exhibits thereto with the SEC.
(d) OPINION OF COUNSEL. Subscriber shall, upon purchase of the
Securities, receive an opinion letter from counsel to the Company in the form
attached hereto as Attachment B, which is incorporated herein by reference and
made a part hereof, and the Company agrees that it will immediately obtain such
an opinion.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SUBSCRIBER. Each
of Subscriber and the Company represent to the other the following with respect
to itself:
(a) NON-CONTRAVENTION. The execution and delivery of this Agreement
and the consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by the Company or Subscriber of any of the terms or provisions of, or
constitute a default under, the articles of incorporation, as amended to date,
or by-laws, as currently in effect, of the Company, or, if Subscriber is not a
natural person, of Subscriber, or any indenture, mortgage, deed of trust of
other material agreement or instrument to which the Company or Subscriber,
respectively, is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation or any applicable
decree, judgment or order of any court, Federal or State regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or Subscriber, respectively, or any of its properties or assets, except
for such conflicts or breaches which would not, in the aggregate, have a
material adverse effect on the Company or Subscriber.
(b) APPROVALS. No authorization, approval or consent of, or
designation, declaration or filing with, any governmental body on the part of
Subscriber or the Company is legally required for the issuance and sale of the
Securities, with the exception of SEC Form D and any New York or other state
blue sky filing by the Company or any placement agent.
5. LEGEND.
(a) The certificate or certificates representing the Securities
shall be subject to a legend restricting transfer under the 1933 Act.
(b) The Securities will be issued with the following legend
appearing thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT THERETO UNDER
THE 1933 ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAW OR
WITHOUT AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO C- PHONE
CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION IS NOT
REQUIRED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN
EXEMPTION THEREFROM.
4
<PAGE>
(c) The legend endorsed on the certificate pursuant to this Section
representing shares of Common Stock shall be removed and the Company shall issue
a replacement certificate without such legend to the holder of such certificate
if the Shares represented by such certificate are being sold pursuant to an
effective registration statement under the 1933 Act (the "Registration
Statement") or if such holder provides to the Company an opinion of counsel
reasonably acceptable to the Company's counsel to the effect that a public sale,
transfer or assignment of such Securities may be made without registration.
6. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE 1933 ACT. The
Company has entered into a Demand Registration Rights Agreement with Subscriber,
in the form attached hereto as Attachment C, which is incorporated herein by
reference and made a part hereof.
7. UNDERWRITER. The Company understands that Subscriber disclaims being
an "underwriter" (as such term is defined under the 1933 Act and the rules and
regulations promulgated thereunder (an "Underwriter")), but Subscriber being
deemed an Underwriter shall not relieve the Company of any obligation it has
hereunder.
8. INFORMATION AVAILABLE. So long as any Registration Statement is
effective covering any of the Securities, the Company will furnish to
Subscriber:
(a) as soon as possible after available (but in the case of the
Company's Annual Report to Stockholders, within 150 days after the end of each
fiscal year of the Company), one copy of (i) its Annual Report to Stockholders
(which Annual Report shall contain financial statements audited in accordance
with generally accepted accounting principles in the United States of America by
a national firm of certified public accountants); (ii) if not included in
substance in the Annual Report to Stockholders, its Annual Report on Form 10-KSB
within 110 days after the end of each fiscal year of the Company; (iii) each of
its Quarterly Reports to Stockholders, if any, and its Quarterly Reports on Form
10-QSB; and (iv) a full copy of the Registration Statement covering the
Securities (the foregoing, in each case, including exhibits); and
(b) upon the reasonable request of Subscriber, such other
information that is generally available to the public.
9. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Securities to the public without registration, the Company agrees to use
its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the 1933 Act, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Exchange Act;
(c) furnish to Subscriber forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144, and of the 1933 Act and the
5
<PAGE>
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other publicly available reports and documents of the Company
and other publicly available information in the possession of or reasonably
obtainable by the Company as Subscriber may reasonably request in availing
itself of any rule or regulation of the SEC allowing Subscriber to sell any such
Securities without registration.
10. TEMPORARY CESSATION OF OFFERS AND SALES BY SUBSCRIBER. Subscriber
acknowledges that there may occasionally be times when the Company may be
required to suspend the use of the prospectus forming part of the Registration
Statement covering the Shares and the shares of Common Stock issuable upon
exercise of the Rights (the "Right Shares") until such time as an amendment to
such Registration Statement has been filed by the Company and declared effective
by the SEC, until the prospectus is supplemented or amended to comply with the
1933 Act, or until such time as the Company has filed an appropriate report with
the SEC pursuant to the Exchange Act. The Company agrees to file any necessary
amendments, supplements and reports as soon as practicable under the
circumstances. Subscriber hereby covenants that it will not sell any shares of
Common Stock pursuant to said prospectus commencing at the time at which the
Company gives Subscriber written notice of the suspension of the use of said
prospectus which notice shall give the reason for such suspension) and ending at
the time the Company gives Subscriber written notice that Subscriber may
thereafter effect sales pursuant to said prospectus, as the same may have been
supplemented or amended.
11. TRANSFER OF SECURITIES AFTER REGISTRATION. Subscriber hereby
covenants with the Company that while a Registration Statement is effective not
to make any sale of the Securities except either (i) in accordance with the
Registration Statement covering the Shares and the Right Shares, in which case
Subscriber covenants to comply with the requirement of delivering a current
prospectus (subject to receipt of such prospectus from the Company), or (ii) in
accordance with Rule 144, in which case Subscriber covenants to comply with Rule
144.
12. TERMINATION OF OBLIGATIONS. The obligations of the Company pursuant
to the Registration Rights Agreement shall cease and terminate upon the earlier
to occur of (i) such time as all of the Shares have been resold and either the
Rights has expired without being exercised or, to the extent that the Rights has
been exercised, the Right Shares have been delivered by the Company and have
been sold, or (ii) one year from the date the Registration Statement has been
declared effective.
13. CLOSING DATE. The Closing Date (the "Closing Date") shall be March
31, 1997, or such other date as shall be mutually agreed upon as to time and
place.
14. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. Subscriber
understands that the Company's obligation to sell the Securities is conditioned
upon:
(a) The receipt and acceptance by the Company of this Subscription
Agreement for all of the Securities as evidenced by execution of this
Subscription Agreement by the President or any Vice President of the Company;
and
(b) Delivery to the Company by Subscriber of good funds as payment
in full for the purchase of the Securities.
15. CONDITIONS TO SUBSCRIBER'S OBLIGATION TO PURCHASE. The Company
understands that Subscriber's obligation to purchase the Securities is
conditioned upon:
(a) Acceptance by the Company of this Subscription Agreement for
the sale of the Securities, as evidenced by the execution of this Agreement by
its authorized officers;
(b) Delivery of the Securities by the Company; and
6
<PAGE>
(c) Delivery of the opinion of counsel.
16. NOTICES. All notices and communications regarding this Agreement
shall be sent to the following:
(a) If to the Company, at:
6714 Netherlands Drive
Wilmington, NC 28405
Attn: Daniel P. Flohr, President
Fax: (910) 395-6108;
with a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attn: Arthur A. Katz, Esq.
Fax: (212) 972-9150.
(b) If to Subscriber, at the address set forth on Schedule 1
hereto.
17. MISCELLANEOUS.
(a) This Agreement will be construed and enforced in accordance
with, and be governed by, the laws of the State of New York applicable to
agreements made and to be fully performed thereon, except for matters arising
under the 1933 Act, the Exchange Act and other applicable laws, without
reference to principles of conflicts of law. The Company and Subscriber consent
to the exclusive jurisdiction of the courts of the State of New York or the
Federal Court for the Southern District of New York. Each party hereby agrees
that if another party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
(b) In lieu of the original, a facsimile transmission or copy of
the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document.
(c) This Agreement and the Schedules and Attachments hereto
constitute the entire agreement between Subscriber and the Company with respect
to the subject matter hereof. This Agreement may be amended only by a writing
executed by both the Company and Subscriber.
(d) In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
(e) Each of the Company and Subscriber agrees to keep confidential
and not to disclose to, or use for the benefit of, any third party the terms of
this Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval
7
<PAGE>
of the other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law.
(f) Each of the parties shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) in connection with this Agreement and the transactions
contemplated hereby.
(g) Each of the Company and Subscriber agrees to indemnify the
other and to hold the other harmless from and against any and all losses,
damages, liabilities, costs and expenses (including reasonable attorneys' fees
and expenses) which the other may sustain or incur in connection with a material
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
(h) Subscriber acknowledges that it understands the meaning and
legal consequences of the representations, warranties, covenants and agreements
contained in this Agreement and the Prospective Investor Questionnaire, and
agrees to indemnify and hold harmless the placement agent of this private
placement from and against any and all losses, damages, liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) which such
placement agent may sustain or incur in connection with a breach by Subscriber
of any representation, warranty or covenant made by it in this Agreement or the
Prospective Investor Questionnaire.
(i) Subscriber acknowledges that it understands the meaning and
legal consequences of the representations, warranties, covenants and agreements
contained in this Agreement and the Prospective Investor Questionnaire, and
agrees to indemnify and hold harmless the placement agent of this private
placement from and against any and all losses, damages, liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) which such
placement agent may sustain or incur in connection with a breach by Subscriber
of any representation, warranty or covenant made by it in this Agreement or the
Prospective Investor Questionnaire.
(j) The representations, warranties, covenants and agreements made
herein shall survive the execution of this Agreement and the closing of the
transactions contemplated hereby.
8
<PAGE>
IN WITNESS WHEREOF, this Securities Purchase Agreement was duly
executed on the date first written below.
SUBSCRIBER
[NAME]
By:
-----------------------------
Name:
Title:
Executed at --------, --------,
this ---- day of March, 1997
Agreed to and Accepted on
this --- day of March, 1997
C-PHONE CORPORATION
By:
-----------------------------
Name:
Title:
9
<PAGE>
SCHEDULE 1 to
SECURITIES PURCHASE AGREEMENT
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME: ----------------------------------------------------
ADDRESS: ----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
TEL NO: ----------------------------------------------------
FAX NO: ----------------------------------------------------
SS OR
TAX ID #: ----------------------------------------------------
CONTACT ----------------------------------------------------
NAME: ----------------------------------------------------
ADDRESS FOR NOTICE, IF DIFFERENT
NAME: ----------------------------------------------------
ADDRESS: ----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
TEL NO: ----------------------------------------------------
FAX NO: ----------------------------------------------------
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME: ----------------------------------------------------
ADDRESS: ----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
TEL NO: ----------------------------------------------------
FAX NO: ----------------------------------------------------
CONTACT
NAME: ----------------------------------------------------
SPECIAL
INSTRUCTIONS: -----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
10
<PAGE>
Attachment A to
SECURITIES PURCHASE AGREEMENT
CONTINGENT VALUE RIGHTS
1. GRANT OF CVRS. If, at any time after March 31, 1997, until 5:30
P.M., New York time, on the first anniversary of the effective date of the
Registration Statement (as defined in the Securities Purchase Agreement), the
Holder shall sell any Shares in a brokerage transaction within the meaning of
Section 4(4) of the Securities Act of 1933 or in a transaction directly with a
market maker as such term is defined in Section 3(a)(38) of the Securities
Exchange Act of 1934 (a "Sale") at a price of less than $8.00 per share, then
the Holder, without the payment of any additional consideration, shall receive
(the "CVR") for each Share sold, such additional number of shares of Common
Stock (the "Right Shares") as shall equal (a) the quotient of (x) $8.00 divided
by (y) the Adjusted Exercise Price (as such term is defined in the next sentence
hereof) minus (b) one. For the purposes of this Agreement the term "Adjusted
Exercise Price" shall mean the average closing bid price per share of Common
Stock for the ten (10) trading days immediately preceding the exercise of the
CVR by the Holder; provided, however, that in no event shall the Adjusted
Exercise Price be adjusted to less than $2.00.
2. NOTICE OF SALE OF SHARES. Contemporaneously with the sale of any
Shares, the Holder shall send a notice (a "Sale Notice") to the Company at its
principal offices (presently located at 6714 Netherlands Drive, Wilmington, NC
28405), which notice shall specify the number of Shares sold and the date of
such sale.
3. ISSUANCE OF STOCK CERTIFICATES. Promptly following the receipt by
the Company of a Sale Notice, the Company shall cause its transfer agent to
forthwith (and in any event within three (3) business days thereafter) issue
certificates representing the whole number of Right Shares, without charge to
the Holder thereof including, without limitation, any tax which may be payable
in respect of the issuance thereof, and such certificates shall be issued in the
name of the Holder thereof; provided, however, that the Company shall not be
required to issue any such certificate more than once with respect to any day.
4. TRANSFER OF CVRS. The CVRs granted to the Holder under this
Agreement may not be assigned except to a transferee of all or a portion of the
Shares to which these CVRs attach and expire with respect to any Shares
immediately following the first Sale thereof.
5. REGISTRATION RIGHTS. The Right Shares shall be subject to all of the
terms of that certain Demand Registration Rights Agreement of even date herewith
among the parties hereto, in the form attached to the Agreement as Attachment C,
which is incorporated herein by reference and made a part hereof.
6. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of Right Shares, nor shall
it be required to issue scrip or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or other securities, properties or rights.
7. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the CVRs, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the CVRs, all shares of Common Stock and other securities issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any stockholder. As long as the CVRs
shall be outstanding, the Company shall use its reasonable best efforts to cause
all shares of Common Stock issuable upon the exercise of the CVRs to be listed
(subject to official notice of issuance) on such securities exchange or quoted
on The Nasdaq Stock Market, Inc. on which the Common Stock is then listed or
quoted.
<PAGE>
8. NOTICES TO CVR HOLDERS. Nothing contained in this Agreement shall be
construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company, solely by virtue of their holding
the CVRs. If, however, at any time prior to the expiration of the CVRs and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or CVR to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or CVRs, or any proposed dissolution, liquidation,
winding up or sale.
2
<PAGE>
[FORM OF SALE NOTICE PURSUANT TO SECTION 2]
The undersigned hereby notifies the Company that it has sold such
number of Shares and on such date as is indicated below.
The undersigned requests that a certificate for such be registered in
its name and that such Certificate be delivered to the undersigned at the
address set forth below:
DATE OF SALE NUMBER OF SHARES SOLD PRICE PER SHARE1
- ------------ --------------------- ----------------
REGISTERED HOLDER
By:
--------------------------------
NAME:------------------------------
DELIVERY---------------------------
ADDRESS:---------------------------
SS OR------------------------------
TAX ID #:--------------------------
- --------
1 Copy of confirmation ticket is required to be attached to this Notice of
Sale.
3
<PAGE>
TO BE COMPLETED BY THE COMPANY:
CALCULATION OF NUMBER OF SHARES REMAINING WITH ATTACHED CVRS
Number of Shares Held by Holder Prior to Sale: -------------
Number of Shares Sold Pursuant to This Notice: - -------------
Number of Shares Remaining with Attached CVRs: = =============
CALCULATION OF NUMBER OF RIGHT SHARES TO BE ISSUED
Initial Sale Price ($6 after gross-up of 25%): $8.00
Average Price (see Section 1) / =============
-------------
- 1.00
-------------
Number of Shares covered by this Sale Notice * -------------
Right Shares to be Issued =============
4
ATTACHMENT C TO
SECURITIES PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 31st day of March, 1997,
between the person listed on the signature page hereto (the "Subscriber") and
C-PHONE CORPORATION, a New York corporation having its principal place of
business at 6714 Netherlands Drive, Wilmington, NC 28405 (the "Company").
WHEREAS, the Company is a party to certain Securities Purchase
Agreements dated the date hereof (the "Purchase Agreements"), pursuant to which
it has agreed to issue and sell an aggregate of not less than three million four
hundred thousand dollars ($3,400,000) nor more than five million dollars
($5,000,000) of its shares (the "Shares") of common stock, $.01 par value per
share ("Common Stock"), and accompanying contingent value rights (the "Rights",
and collectively with the Shares the "Securities"); and
WHEREAS, the Company has agreed to grant to the Subscriber and the
other subscriber parties to the various Purchase Agreements (each, a "Holder"
and collectively, the "Holders") certain registration rights set forth herein
with respect to the Securities; and
WHEREAS, Daniel Flohr, President and Chief Executive Officer of the
Company ("Flohr") has delivered to Josephthal Lyon & Ross Incorporated ("JLR")
250,000 shares of his Common Stock (the "Escrowed Shares") to be used to satisfy
certain obligations to the Holders.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein, the term
"Registrable Security" means the Shares and the shares of Common Stock issuable
upon exercise of the Rights (the "Right Shares"); provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the "1933
Act") and disposed of pursuant thereto, (ii) registration under the 1933 Act is
no longer required for the immediate public distribution of such Common Stock as
a result of the provisions of Rule 144, or (iii) with respect to any Right
Shares, they have not yet been issued and the Rights have ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
shares of Common Stock falling within the foregoing definition of a Registrable
Security. In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of Registrable Security
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Section 1.
Section 2. RESTRICTIONS ON TRANSFER. The Holder acknowledges and
understands that prior to the registration of the Registrable Securities as
provided herein, the Securities are "restricted securities" as defined in Rule
144 promulgated under the 1933 Act. The Holder understands that no disposition
or transfer of the Securities may be made by the Holder in the absence of (i) an
opinion of counsel reasonably satisfactory to the Company that such transfer may
be made, or (ii) a registration statement under the 1933 Act then being
effective with respect thereto.
Section 3. REGISTRATION RIGHTS.
(a) At any time commencing fifteen (15) days after the date hereof, the
Holders owning at least thirty-three percent (33%) of the Shares shall have the
right (if not previously exercised by any other Holder or Holders), exercisable
by written notice to the Company (the "Demand Registration Request"), to have
the Company prepare and file with the Securities and Exchange Commission (the
"SEC") within five
<PAGE>
(5) days after receipt of the Demand Registration Request a registration
statement on Form S-3 (the "Registration Statement"), on one occasion, at the
sole expense of the Company (except as provided in Section 3(c) hereof), in
respect of all Holders of Registrable Securities, each of whom shall have the
right to include their Registrable Securities therein if they have provided to
the Company, within five (5) days after receipt thereof, a properly completed
questionnaire of the type commonly used for offerings of this kind, so as to
permit a public offering and sale of the Registrable Securities under the 1933
Act.
(b) The Company will use its reasonable best efforts to maintain any
Registration Statement or post-effective amendment filed under this Section 3
hereof current under the 1933 Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to the Registration Statement
and (ii) the first anniversary of the effective date of the Registration
Statement.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of any
Registration Statement under Section 3(a) hereof and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the cost
of underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company at its expense will supply the Holder with copies of such Registration
Statement and the prospectus or offering circular included therein and other
related documents in such quantities as reasonably may be requested by the
Holder.
(d) The Company shall not be required by this Section 3 to include a
Holder's Registrable Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Holder and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters reasonably acceptable to counsel for the Holder and the
Company) the proposed offering or other transfer as to which such registration
is requested is exempt from applicable federal and state securities laws and
would result in all purchasers or transferees thereof obtaining securities which
are not "restricted securities", as defined in Rule 144 under the 1933 Act.
(e) (i) In the event that the Registration Statement to be filed by the
Company pursuant to Section 3(a) hereof is not declared effective by the SEC
within ninety five (95) days after receipt by the Company of the Demand
Registration Request, then JLR shall cause to be delivered from the Escrowed
Shares to each Holder, as a penalty, for each day thereafter until the earlier
of (A) the date that the Registration Statement is declared effective (the
"Effective Date") and (B) the 185th day after the receipt by the Company of the
Demand Registration Request, all rights with respect to such number of shares of
Common Stock as shall equal the product of (x) 1,000 and (y) a fraction, the
numerator of which is the purchase price paid for the Securities by the Holder
and the denominator of which is the aggregate purchase price paid for the
Securities by all of the Holders.
(ii) In the event that the Registration Statement is not declared
effective by the SEC within one hundred eighty five (185) days after receipt by
the Company of the Demand Registration Request, then JLR shall cause to be
delivered from the Escrowed Shares to each Holder, as a penalty, all rights with
respect to such number of shares of Common Stock as shall equal the product of
(A) 160,000 and (B) a fraction, the numerator of which is the purchase price
paid for the Securities by the Holder and the denominator of which is the
aggregate purchase price paid for the Securities by all of the Holders.
(f) No provision contained herein shall preclude the Company from
selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
Section 4. APPROVAL OF ISSUANCE OF EXCESS RIGHTS. Notwithstanding the
obligation of the Company hereunder to register the Right Shares, the Holder
acknowledges that, pursuant to the listing requirements of The Nasdaq National
Market ("NNM"), the Company will be required to seek the approval (the "Rights
2
<PAGE>
Proposal") of its shareholders prior to the issuance of any Excess Right Shares
(as defined below). For purposes of this Agreement, "Excess Right Shares" shall
mean any Right Shares in excess of the difference between 870,000 and the
aggregate number of Shares sold pursuant to the Purchase Agreements. The Company
agrees (i) to include the Rights Proposal in its proxy materials for the
Company's regularly scheduled 1997 Annual Meeting of Shareholders to be held no
later than August 30, 1997, (ii) to use its best efforts to obtain timely
clearance from the SEC of such proxy materials, (iii) to mail such proxy
materials in a timely manner and (iv) to use its best efforts to cause the
Company's board of directors to recommend (and not subsequently withdraw)
approval of the Rights Proposal to shareholders.
Section 5. COOPERATION WITH THE COMPANY. The Holders will reasonably
cooperate with the Company in all respects in connection with this Agreement,
including, timely supplying all information reasonably requested by the Company
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities.
Section 6. REGISTRATION PROCEDURES. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the 1933 Act, the Company shall
(except as otherwise provided in this Agreement), expeditiously:
(a) prepare and file with the SEC and the National Association of
Securities Dealers, Inc., if applicable, such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep the Registration Statement effective and to comply with the
provisions of the 1933 Act with respect to the sale or other disposition of all
Registrable Securities covered by the Registration Statement whenever the Holder
or Holders of such Registrable Securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a Registration Statement
pursuant to Rule 415 under the 1933 Act);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the 1933 Act, and such other documents, as such Holder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities owned by such Holder;
(c) use its reasonable best efforts to register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Holders shall
reasonably request, and do any and all other acts and things which may be
necessary or advisable to enable each Holder to consummate the public sale or
other disposition in such jurisdictions of such Registrable Securities owned by
such Holder, except that the Company shall not for any such purpose be required
to qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified or to file therein any general consent to service of
process;
(d) use its best efforts to list the Registrable Securities on the NNM
or any securities exchange on which the Common Stock is then listed, if the
listing of such Registrable Securities is then permitted under the rules of the
NNM or such exchange;
(e) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering;
(f) notify each Holder of Registrable Securities covered by the
Registration Statement, at any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the 1933 Act, of
the happening of any event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a
3
<PAGE>
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
Section 7. INFORMATION BY THE HOLDER. Each Holder of Registrable
Securities included in any Registration Statement shall furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the Company reasonably may request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
Section 8. ASSIGNMENT OF REGISTRATION RIGHTS. The rights granted the
Holders under this Agreement may not be assigned except to a transferee of all
or a portion of the Registrable Securities.
Section 9. TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted
transferee under Section 8 hereof) upon the occurrence of any of the following:
(a) all such Holder's Registrable Securities subject to this Agreement
have been sold; or
(b) such Holder's Registrable Securities subject to this Agreement may
be sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the 1933 Act.
Section 10. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement with
respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the 1933 Act ("Distributing Holders")
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees and expenses), to
which the Distributing Holders may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person, if
any, who controls the Company within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees and expenses) to which the Company or any
such officer, director or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof); arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in a Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
or alleged
4
<PAGE>
untrue statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof and,
provided further, that the indemnity agreement contained in this Section 10(b)
shall not inure to the benefit of the Company with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Company was responsible for the
failure to send or give (in violation of the 1933 Act or the rules and
regulations promulgated thereunder) a copy of the prospectus contained in such
Registration Statement to such person at or prior to the written confirmation to
such person of the sale of such Registrable Securities, where the Company was
obligated to do so under the 1933 Act or the rules and regulations promulgated
thereunder. This indemnity agreement will be in addition to any liability which
the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion, in which
event, such legal or other expenses shall become the responsibility of the
indemnifying party from and after it relinquishes its role of so pursuing such
action. The indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of the indemnifying party
if the indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that if the
indemnified party is the Distributing Holder, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party, or (ii) the named parties to any such action (including any impleaded
parties) include both the Distributing Holder and the indemnifying party and the
Distributing Holder shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the Distributing
Holder (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the Distributing Holder, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for all Distributing Holders, which firm shall be designated in
writing by the Distributing Holders). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Section 11. CONTRIBUTION. In order to provide for just and equitable
contribution under the 1933 Act in any case in which (i) the Distributing Holder
makes a claim for indemnification pursuant to Section 10 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 10 hereof
provide for indemnification in such case, or (ii) contribution under the 1933
Act may be required on the part of any Distributing Holder, then the Company and
the applicable Distributing Holder shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which
5
<PAGE>
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees and expenses), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Notwithstanding the provisions of this
Section 11, the Holder shall not be required to contribute any amount in excess
of the Purchase Price.
Section 12. NOTICES. Any notice pursuant to this Agreement by the
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery, or (iii) if mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Holder, to its, his or her address set forth on the
signature page of this Agreement, with a copy to the person designated in the
Purchase Agreement; and
(b) If to the Company, at:
6714 Netherlands Drive
Wilmington, NC 28405
Attn: Daniel P. Flohr, President
Fax: (910) 395-6108;
with a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attn: Arthur A. Katz, Esq.
Fax: (212) 972-9150;
or to such other address as any such party may designate by notice to the other
party. Notices shall be deemed given at the time they are delivered personally
or five (5) days after they are mailed in the manner set forth above. If notice
is delivered by facsimile and followed by mail, delivery shall be deemed given
two (2) business days after such facsimile is sent.
Section 13. ASSIGNMENT. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. This Agreement cannot be assigned, amended or modified by the
parties hereto, except by written agreement executed by the parties hereto. If
requested by the Company, the Holder shall have furnished to the Company an
opinion of counsel reasonably satisfactory to the Company to such effect.
Section 14. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6
<PAGE>
Section 15. HEADINGS. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 15. GOVERNING LAW, VENUE. This Agreement shall be governed by
and construed in accordance with the laws and jurisdiction of the State of New
York, with regard to conflicts of law principles.
Section 17. SEVERABILITY. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or unenforceablity
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
C-PHONE CORPORATION
By:
-------------------------
Name:
Title:
HOLDER
By:
-------------------------
Name:
Title:
JOSEPHTHAL LYON & ROSS INCORPORATED
By:
-------------------------
Name:
Title:
Solely for the Purposes
of Section 3(e) of this
Agreement
- ------------------------
Daniel P. Flohr
7
C-PHONE CORPORATION
AND
JOSEPHTHAL LYON & ROSS INCORPORATED
PLACEMENT AGENT
WARRANT AGREEMENT
Dated as of March 31, 1997
<PAGE>
PLACEMENT AGENT WARRANT AGREEMENT dated as of March 31, 1997 by and
between C-PHONE CORPORATION, a New York corporation (the "Company"), and
JOSEPHTHAL LYON & ROSS INCORPORATED, (hereinafter referred to variously as the
"Holder" or the "Placement Agent").
WITNESSETH
WHEREAS, the Company proposes to issue to the Placement Agent warrants
("Warrants") to purchase up to an aggregate of 150,000 shares of common stock,
$.01 par value, of the Company (the "Common Stock"); and
WHEREAS, the Placement Agent has agreed pursuant to the placement agent
agreement (the "Placement Agent Agreement") dated as of the date hereof by and
between the Placement Agent and the Company to act as the Placement Agent in
connection with the Company's proposed offering of its shares of Common Stock in
an aggregate offering of not less than $3,400,000 nor more than $5,000,000 (the
"Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Placement Agent
Agreement) by the Company to the Placement Agent in consideration for, and as
part of the Placement Agent's compensation in connection with, the Placement
Agent acting as the Placement Agent pursuant to the Placement Agent Agreement;
NOW, THEREFORE, in consideration of the mutual premises made herein,
the payment by the Placement Agent to the Company of an aggregate of ten dollars
($10.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. GRANT. The Holder is hereby granted the right to purchase, at any
time from March 31, 1997 until 5:30 P.M., New York time, on the 90th day
following the date on which the Company's registration statement filed with the
Securities and Exchange Commission ("SEC") which includes the shares of Common
Stock issuable upon exercise of the Warrants (the "Warrant Securities") is
declared effective by the SEC (the "Expiration Date"), up to an aggregate of
150,000 shares of Common Stock at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $9.60 per share of Common Stock
subject to the terms and conditions of this Agreement.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT. The Warrants initially are exercisable at an
exercise price (subject to adjustment as provided in Section 8 hereof) per share
of Common Stock set forth
<PAGE>
in Section 6 hereof payable by certified or official bank check in New York
Clearing House funds. Upon surrender of a Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the shares of Common Stock purchased
at the Company's principal offices presently located at 6714 Netherlands Drive,
Wilmington, North Carolina 28405 the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). In the case of the purchase of less than
all the shares of Common Stock purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within three (3) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the Common
Stock (and/or other securities, property or rights issuable upon the exercise of
the Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; and that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
2
<PAGE>
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $9.60
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
The Warrant Securities shall be included in the registration statement
to be prepared and filed by the Company with the SEC pursuant to the terms of
that certain Registration Rights Agreement of even date herewith by and among
the Company, the investors in the Offering and the Placement Agent. The
Registration Rights Agreement is incorporated herein by reference and made a
part hereof, and it is expressly agreed that the Warrant Securities shall have
all of the rights and privileges of the shares of Common Stock which are the
subject of the Registration Rights Agreement, and that the Holders of Warrants
are third party beneficiaries of the Registration Rights Agreement.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Securities issuable upon the exercise at the adjusted exercise price of each
Warrant shall be adjusted to the nearest full amount by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
3
<PAGE>
8.4 DEFINITION OF COMMON STOCK. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
8.5 MERGER OR CONSOLIDATION. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment of
the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of said adjustment shall be less than two cents
(2(cent)) per Warrant Share, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
two cents (2(cent)) per Warrant Share.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation
4
<PAGE>
of the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on The Nasdaq Stock Market, Inc.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events,
5
<PAGE>
the Company shall give written notice of such event at least fifteen (15) days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the stockholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription rights, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend, or the issuance of any convertible
or exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the Placement Agent may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Placement Agent) in order to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Placement Agent may deem necessary or desirable and which
the Company and the Placement Agent deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of
business on the earlier to occur of (i) the day the last Warrant Security
issuable hereunder is issued, and (ii) the Expiration Date.
17. GOVERNING LAW: Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to its rules
governing the conflicts of laws.
The Company and the Placement Agent hereby agree that any action,
proceeding or claim against it arising out of or relating in any way to, this
Agreement shall be brought and
6
<PAGE>
enforced in the courts of the State of New York or of the United States of
America for the Southern District of New York, and irrevocably submit to such
jurisdiction, which jurisdiction shall be exclusive. The Company and the
Placement Agent hereby irrevocably waive any objection to such exclusive
jurisdiction or inconvenient forum. Any such process or summons to be served
upon the Company or the Placement Agent (at the option of the party bringing
such action, proceeding or claim) may be served by transmitting a copy thereof,
by registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address referred to in Section 13 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim. The Company and the Placement
Agent agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
18. ENTIRE AGREEMENT: Modification. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Placement Agent and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company, the Placement Agent and the Holder(s) of the Warrant Certificates or
Warrant Securities.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL]
C-PHONE CORPORATION
By:
----------------------------
Name:
Title:
Attest:
- -----------------
Secretary
JOSEPHTHAL LYON & ROSS
INCORPORATED
By:
----------------------------
Name:
Title:
8
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
No. W-
-------
WARRANT CERTIFICATE
This Warrant Certificate certifies that --------, or registered assigns, is the
registered holder of 150,000 Warrants, each Warrant entitling the holder to
purchase initially, at any time from March 31, 1997 until 5:30 p.m. New York
time on the 90th day following the date on which the Company's registration
statement filed with the Securities and Exchange Commission ("SEC") which
includes the shares of Common Stock $.01 par value ("Common Stock") issuable
upon the exercise hereof is declared effective by the SEC ("Expiration Date"),
one fully-paid and non-assessable share of Common Stock of C-Phone Corporation,
a New York corporation (the "Company"), at the initial exercise price, subject
to adjustment in certain events (the "Exercise Price"), of $9.60 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of March 31,
1997 by and between the Company and Josephthal Lyon & Ross Incorporated (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check in New York Clearing House funds payable to the order of
the Company or by surrender of this Warrant Certificate.
9
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
10
<PAGE>
IN WITNESS WHEREOF the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of March --, 1997
C-PHONE CORPORATION
[SEAL] By:-------------------------
Name:
Title:
Attest:
- ---------------------------
Secretary
11
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ------------- shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
C-Phone Corporation in the amount of $---------, all in accordance with the
terms of Section 3 of the Placement Agent Warrant Agreement dated as of March
31, 1997 between C-Phone Corporation and Josephthal Lyon & Ross Incorporated.
The undersigned requests that a certificate for such securities be registered in
the name of ------------ whose address is --------------------- and that such
Certificate be delivered to ------------------ whose address is ---------------
Dated: --------------------
Signature ----------------------------
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant Certificate.)
--------------------------------------
(Insert Social Security or Other Identifying Number of Holder)
12
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED) --------------------------- hereby sells, assigns and
transfers unto ------------------------------------.
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ------------- Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: --------------------
Signature:
-------------------------
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
-------------------------------
(Insert Social Security or Other Identifying Number of Assignee)
13
Stock Pledge Agreement
STOCK PLEDGE AGREEMENT, dated as of March 31, 1997, made by and between
Daniel P. Flohr (the "Pledgor"), and Josephthal Lyon & Ross Incorporated, as
agent (in such capacity, the "Agent") for the investors (the "Investors") in a
private placement of shares of common stock (the "Common Stock") of C-Phone
Corporation (the "Company") made of even date herewith (the "Private
Placement").
WHEREAS, (i) pursuant to the Private Placement, the Investors have
severally acquired shares of the Company's Common Stock in the aggregate
principal amount of not more $5,000,000, (ii) the Company has agreed, pursuant
to a Registration Rights Agreement of even date herewith to register the Common
Stock upon receipt of a notice of demand therefor, (iii) the Pledgor, as the
Company's President and Chief Executive Officer, has agreed to pledge 250,000
shares of Common Stock to guarantee the obligations of the Company under the
Registration Rights Agreement, (iv) the Pledgor (a) is the legal and beneficial
owner of all of the shares of Pledged Stock (as hereinafter defined) issued by
the Company, and (b) will derive material benefits from the consummation of the
Private Placement; and (v) it is a condition precedent to the consummation of
the Private Placement that the Pledgor shall have executed and delivered to the
Agent for the ratable benefit of the Investors this Pledge Agreement.
NOW, THEREFORE, in consideration of the mutual premises made herein and
to induce the Agent and the Investors to enter into the documents relating to
the Private Placement, including without limitation the Securities Purchase
Agreement and the Prospective Investor Questionnaire, and to induce the
Investors to consummate the Private Placement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby agrees with the Agent, for the ratable benefit of the Investors,
as follows:
1. DEFINED TERMS. The terms defined in the preamble of this Agreement
have the meanings set forth therein and the following terms have the meanings
set forth below:
"Agreement" means this Pledge Agreement and the Schedules and Exhibits
attached hereto, as amended, supplemented or otherwise modified from time to
time.
"Code" means the Uniform Commercial Code from time to time in effect in
the State of New York,
"Collateral" means the Pledged Stock and all Proceeds thereof.
<PAGE>
"Forfeited Collateral" means so much of the Collateral as has been
forfeited pursuant to the provisions of Section 7(a) hereof.
"Registration Obligations" means the obligations of the Company to file
a registration statement with the Securities and Exchange Commission as more
fully set forth in the Registration Rights Agreement.
"Pledged Stock" means the shares of capital stock of the Company,
together with all stock certificates, options or rights of any nature whatsoever
which may be issued or granted by the Company to the Pledgor in respect of the
Pledged Stock while this Pledge Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Code and, in any event, shall (i) include, without limitation,
all dividends or other income from the Pledged Stock, collections thereon or
distributions made with respect thereto.
2. PLEDGE: GRANT OF SECURITY INTEREST. The Pledgor hereby pledges and
delivers to the Agent for the ratable benefit of the Investors, all of the
Pledged Stock specified on Schedule 1 hereto and hereby grants to the Agent, for
the ratable benefit of the Investors, a first-priority security interest in the
Collateral, as collateral security for the prompt and complete satisfaction and
performance of all of the Registration Obligations.
3. STOCK POWERS. Concurrently with the delivery by the Pledgor to the Agent
of any certificate representing the shares of the Pledged Stock, the Pledgor
shall deliver an undated stock power covering such certificate, duly executed in
blank with, if the Agent so requests, signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants to
the Agent and the Investors that as of the date hereof:
(a) the Pledgor has the power and authority and the legal right to
execute and deliver, to perform its obligations under, and to grant the lien on
the Collateral pursuant to, this Pledge Agreement and has taken all necessary
action to authorize its execution, delivery and performance of, and grant the
lien on the Collateral pursuant to this Pledge Agreement;
(b) this Pledge Agreement constitutes a legal, valid and binding
obligation of the Pledgor, enforceable against the Pledgor in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights
2
<PAGE>
generally and except as enforceability may be limited by general principles of
equity;
(c) the execution, delivery and performance of this Pledge Agreement by
the Pledgor will not violate any provision of any law order, writ or decree
binding upon or obligation of the Pledgor;
(d) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or governmental authority and no consent of any other
person (including, without limitation, any stockholder or creditor of the
Pledgor or any shareholder of the Company) is required in connection with the
execution, delivery, or performance by the Pledgor or the validity or
enforceability against the Pledgor of this Pledge Agreement;
(e) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor or against any of its properties
or revenues with respect to this Pledge Agreement or any of the transactions
contemplated hereby;
(f) all of the shares of Pledged Stock have been duly and validly
issued and are fully paid and nonassessable; and there are no outstanding
subscriptions, options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements providing for the purchase,
encumbrance, hypothecation, or any other purported transfer or encumbrance of
any of the Pledged Stock;
(g) the Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock, free and clear of any and all liens or
options in favor of, or claims of, any other person, except the lien created by
this Pledge Agreement;
(h) upon delivery to the Agent of the stock certificates evidencing the
Pledged Stock, so long as such Pledged Stock is delivered to the Agent in the
State of New York, the lien granted pursuant to this Pledge Agreement will
constitute (under the laws of the State of New York) a valid, perfected,
first-priority lien on the Collateral, enforceable as such against the Pledgor,
all creditors of the Pledgor and any persons purporting to purchase any of the
Collateral from the Pledgor; and
(i) the Pledgor has beneficially owned all of the shares of Pledged
Stock for a period of at least three (3) years.
5. COVENANTS. The Pledgor covenants and agrees with the Agent and the
Investors that, from and after the date of this Pledge Agreement until the
Registration Obligations are performed and satisfied in full:
3
<PAGE>
(a) If the Pledgor shall, as a result of its ownership of any Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution of equity in connection with any reclassification, increase or
reduction of capital or any certificate issued in connection with any
reorganization), option or rights, whether in addition to, in substitution of,
as a conversion of or in exchange for any shares of any Pledged Stock, or
otherwise in respect thereof, the Pledgor shall accept the same as the agent for
the Agent and the Investors, hold the same in trust for the Agent and the
Investors and deliver the same forthwith to the Agent in the exact form
received, duly endorsed by the Pledgor to the Agent, if required, together with
an undated stock power covering such certificate duly executed in blank and
with, if the Agent so requests, signature guaranteed, to be held by the Agent
hereunder as Collateral. Any sums paid upon or in respect of any Pledged Stock
upon the liquidation or dissolution of the Company shall be paid over to the
Agent to be held by it hereunder as Collateral, and in case any distribution of
capital shall be made on or in respect of any Pledged Stock or any property
shall be distributed upon or with respect to any Pledged Stock, in either case,
pursuant to the recapitalization or reclassification of the capital of the
Company, or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Agent to be held by it, subject to the terms hereof,
as Collateral. If any sums of money or property so paid or distributed in
respect of any Pledged Stock shall be received by the Pledgor, the Pledgor
shall, until such money or property is paid or delivered to the Agent, hold such
money or property in trust for the Agent and the Investors, segregated from
other funds of the Pledgor, as Collateral.
(b) Without the prior written consent of the Agent, the Pledgor will
not (i) vote to enable, or take any other action to permit, any company to issue
any stock or other equity securities of any nature or to issue any other
securities convertible into or granting the right to purchase or exchange for
any stock or other equity securities of the Company, (ii) sell, assign,
transfer, exchange or otherwise dispose of, or grant any option with respect to,
the Collateral, or (iii) create, incur or permit to exist any lien or option in
favor of, or any claim of any person with respect to, any of the Collateral, or
any interest therein, except for the lien provided for by this Pledge Agreement.
The Pledgor will defend the right, title and interest of the Agent, and the
Investors in and to the Collateral against the claims and demands of all persons
whomsoever.
(c) At any time and from time to time, upon the written request of the
Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Agent may reasonably request for the purposes of
obtaining or
4
<PAGE>
preserving the full benefits of this Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other instrument
or chattel paper, such note, instrument or chattel paper shall be immediately
delivered to the Agent, duly endorsed in a manner satisfactory to the Agent, to
be held as Collateral pursuant to this Agreement.
(d) The Pledgor agrees to pay, and to indemnify and save the Agent and
the Investors harmless from and against, any and all liabilities with respect
to, or resulting from any delay in paying, any and all stamp, excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(e) The Pledgor will not create, incur or permit to exist any lien upon
the Pledged Stock other than the Lien in favor of the Agent for the benefit of
the Investors created hereunder.
6. CASH DIVIDENDS: VOTING RIGHTS. Unless an Event of Default (as
hereinafter defined) shall have occurred and be continuing and the Agent shall
have given notice to the Pledgor of the Agent's intent to exercise its
corresponding rights pursuant to paragraph 7 below, the Pledgor shall be
permitted to receive all cash dividends paid by the Company in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock; provided, however, that the Pledgor hereby covenants that it
shall not cast any vote or take any other action that, in the Agent's reasonable
judgment, would impair any of the Collateral or which would be inconsistent with
or result in any violation of any provision of this Pledge Agreement.
7. EVENT OF DEFAULT; RIGHTS OF THE AGENT. (a) For the purposes of this
Pledge Agreement, the term "Event of Default" shall mean the failure of the
Registration Statement referred to in the Registration Rights Agreement to be
declared effective by the Securities and Exchange Commission within 95 days of
the receipt by the Company of the Demand Registration Request (as defined in
such agreement). For each day on which an Event of Default shall continue
unabated, Pledgor shall forfeit, and Agent shall be entitled to exercise any of
the remedies set forth in paragraph 8 hereof with respect to 1,000 shares of
Pledged Stock, up to a maximum of 90 days, or 90,000 shares of Pledged Stock. If
an Event of Default shall continue unabated for a period of 91 days, then
Pledgor shall forfeit, and Agent shall be entitled to exercise any of the
remedies set forth in paragraph 8 hereof with respect to, the remaining 160,000
shares of Pledged Stock.
(b) If an Event of Default shall have occurred and be continuing and
the Agent shall give notice of its intent to exercise any of the following
rights to the Pledgor: (i) the Agent
5
<PAGE>
shall have the right to receive on behalf of the Investors any and all cash
dividends paid in respect of the forfeited shares of Pledged Stock and make
application thereof in such order as it may determine, (ii) all forfeited shares
of the Pledged Stock shall be registered in the name of the Agent or its
nominee, and the Agent or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at any
meeting of stockholders of the Company or otherwise, and (B) any and all rights
of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Stock as if it were the
absolute record and beneficial owner thereof (including, without limitation, the
right to exchange at its discretion any and all of such shares of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of the Company, or upon the
exercise by the Pledgor or the Agent of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith, the
right to deposit and deliver any and all of such shares of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine), all without
liability except to account for property actually received by it, but the Agent
shall have no duty to exercise any such right, privilege or option and shall not
be responsible for any failure to do so or delay in so doing.
(c) The rights of the Agent hereunder shall not be conditioned or
contingent upon the pursuit by the Agent of any right or remedy against the
Company or against any other person that may be or become liable in respect of
all or any part of the Registration Obligations or against any other collateral
security therefor, guarantee thereof or right of offset with respect thereto.
The Agent shall not be liable for any failure to demand, collect or realize upon
all or any part of the Collateral or for any delay in doing so, nor shall the
Agent be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
8. REMEDIES. If an Event of Default shall occur and be continuing, the
Agent, on behalf of the Investors, may exercise, in addition to all other rights
and remedies granted in this Pledge Agreement and in any other instrument or
agreement securing, evidencing or relating to the Registration Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Pledgor, the Company or
any other person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Forfeited Collateral, or
6
<PAGE>
any part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Forfeited Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Agent or any Investor shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Forfeited Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived or released. The Agent shall disburse any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale after deducting all reasonable costs and
expenses of every kind incurred therein or in the care or safekeeping of any of
the Forfeited Collateral or the exercise by the Agent of its rights hereunder,
including, without limitation, reasonable attorneys' fees and disbursements,
ratably to the Investors, in such order as the Agent may elect. To the extent
permitted by applicable law, the Pledgor waives all claims, damages and demands
it may acquire against the Agent arising out of the exercise by the Agent or any
Investor of any of its rights hereunder; provided, however, that such waiver
shall not apply to any claims, damages or demands resulting from the Agent's or
any Investor's gross negligence or willful misconduct. If any notice of a
proposed sale or other disposition of Forfeited Collateral shall be required by
law, such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition.
9. [INTENTIONALLY OMITTED].
10. [INTENTIONALLY OMITTED].
11. AMENDMENTS, ETC. WITH RESPECT TO THE REGISTRATION OBLIGATIONS. Until
the Registration Obligations are satisfied in full, the Pledgor shall remain
obligated hereunder, and the Collateral shall remain subject to the lien granted
hereby. The Agent shall have no obligation to protect, secure, perfect or insure
any other lien at any time held by it as security for the Registration
Obligations or any property subject thereto. The Pledgor waives any and all
notice of the creation, renewal, extension or accrual of any of the Registration
Obligations and notice of or proof of reliance by the Agent upon this Pledge
Agreement; the Registration Obligations shall conclusively be deemed to have
been created, contracted or incurred in reliance upon this Pledge Agreement; and
all dealings among the Company, the Pledgor, the Agent and the Investors shall
likewise be conclusively presumed to have been had or consummated in reliance
upon this Pledge Agreement. The Pledgor waives diligence, presentment,
7
<PAGE>
protest, demand and notice of default to or upon the Company or the Pledgor with
respect to the Registration Obligations.
12. LIMITATION ON DUTIES REGARDING COLLATERAL. The Agent's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9- 207 of the Code or otherwise, shall be to
deal with it in the same manner as the Agent deals with similar securities and
property for its own account. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or otherwise.
13. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable powers coupled with an
interest.
14. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provision hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
15. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
16. NO WAIVER: CUMULATIVE REMEDIES. The Agent shall not by any act of
(except by a written instrument pursuant to paragraph 17 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising on the part of the Agent, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Agent would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
17. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW. None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a
8
<PAGE>
written instrument executed by the Pledgor and the Agent; provided, however that
any provision of this Agreement with respect to the rights of the Agent or the
Investors may be waived only by the Agent in a letter or agreement executed by
the Agent. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Pledgor, the Agent and the Investors. This
Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York without regard to the conflict-of-laws
principles thereof.
18. NOTICES. Any notice hereunder shall be delivered to the address and/or
telecopy number of the Pledgor and the Agent specified below and given by
certified mail-return requested or by telecopier, and shall be deemed given when
so sent.
19. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO THE COMPANIES. The Pledgor
hereby authorizes and instructs the Company and, if applicable, each other
stockholder of the Company to comply with any instruction received by it from
the Agent in writing that (a) states that an Event of Default has occurred and
(b) is otherwise in accordance with the terms of this Agreement without any
other or further instructions from the Pledgor, and the Pledgor agrees that the
Company and/or the other stockholders of the Company shall be fully protected in
so complying.
20. AUTHORITY OF AGENT. The Pledgor acknowledges that the rights and
responsibilities of the Agent under this Pledge Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the Agent
and the Investors, be governed by such agreements with respect thereto as may
exist from time to time among them, but, as between the Agent and the Pledgor,
the Agent shall be conclusively presumed to be acting as agent for the Investors
with full and valid authority so to act or refrain from acting, and the Pledgor
shall not be under any obligation, or entitlement, to make any inquiry
respecting such authority.
21. TERMINATION; RELEASE. When all Registration Obligations have been
satisfied in full, this Agreement shall terminate, and the Agent, at the expense
of the Pledgor, will execute and deliver to the Pledgor a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Pledgor (without recourse and
without any representation or warranty) such of the Collateral as may be in the
possession of the Agent and which has not theretofore been sold or otherwise
applied or released pursuant to this Agreement, together with any moneys at the
time held by the Agent hereunder.
9
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Agent have caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
--------------------------
Daniel P. Flohr
Address for Notices:
c/o C-Phone Corporation
6714 Netherlands Drive
Wilmington, NC 28405
Telecopy: (910) 395-6108
with a copy to:
Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attn: Arthur Katz, Esq.
Telecopy: (212) 984-7893
JOSEPHTHAL LYON & ROSS
INCORPORATED
By:
-------------------------
Name:
Title:
Address for Notices:
200 Park Avenue
24th Floor
New York, New York 10166
Attention: Dan Purjes
Telecopy: (212) 907-4086
with a copy to:
Michael Loew, Esq.
200 Park Avenue
24th floor
New York, New York 10166
Telecopy: (212) 949-9884
10
<PAGE>
SCHEDULE 1
CERTIFICATE NO. NO. OF SHARES OF
- -------------- COMMON STOCK
----------------
3120 73,455
3114 100,000
76,545
11
